How builders can charge only 5% VAT on construction projects

[@alimonfared]

Hi great video, let’s say my refurb company does refund for destroyed houses sometimes they haven’t been empty for more than 2 years but all the works we do is to improve the EPC to a c plus and that consist of external boarded wall insulation and loft insulation and basically what is required to get the EPC to a c + dos our renovation fall in the 5% bracket? Thank you for your video

[@RobertBacon-zy7dz]

Hi, I have a related question that hopefully you can advise on. I have recently had a dispute with a builder that I now know has a dubious back ground. The work he requested payment for was at various build stages was charged at 5%, although this does not fall into one of the categories mentioned. I chased for associated invoices which he was reluctant to provide me with, and a year later he presented invoices (a) not covering all of the payments, i.e. only the bank transfers not cash payments he asked for, (b) not correctly addressed, i.e. he didn't use my name or full post code (c) each payment was then charged at 20% VAT, although the overall total is the same which looks odd to me (d) the invoice breakdown did not include all items it should have included according to the HMRC website (e) he hasn't provided receipts for any payments cash or bank transfer. Is there some form of VAT fraud going on here? I suspect so, as he also started the work under the name of one company but has invoiced under a new company name, with the first company now in liquidation. Any help much appreciated

[@hendersonloggie3787]

Hi Robert, thanks for the comment. As you note, it is important that the contractor is applying the correct rate of VAT to the work in question. If you are in a position to reclaim the VAT charged (as a VAT registered business customer), then it becomes of material importance that valid VAT invoices are issued for the works (with the correct rate of VAT applied) to ensure any claim made for input tax is valid. However, if you are a private customer then VAT invoicing is not as important provided that you are charged the correct gross total, and a receipt is provided to evidence the payment (note that there is no legal requirement for the supplier to issue a VAT invoice to a private customer). Unfortunately, it is commonplace for construction businesses to be wound up and then incorporated under a new name, and it would be difficult to say whether the ‘loose’ invoicing is a result of fraud or simply bad practice/ignorance of VAT law. If you are a business customer, and you are in a position to recover the VAT charged on the services in question, we’d be happy to discuss the position and options with you under separate cover. If you’d like to discuss this, please contact my colleague Alan Davis ([e-mail]).

[@johnd5079]

How does this work for a company that performs a commissioning service to the builder as to what rate of VAT is the builder invoice for?

[@hendersonloggie3787]

Hi John, thanks for your message. Generally, subcontractors can charge VAT at the reduced rate/zero rate on their services to a main contractor provided the service performed on the building also qualifies for 5%/0% treatment (i.e. it is a ‘qualifying’ construction service). However, you should be aware that there are exceptions to this general rule which can render the service standard rated for VAT. Examples would be; - supplies in respect of certificated buildings (communal residential buildings or buildings used by charities) - only main contractor can benefit from Zero Rating. - supplies made to a relevant housing association - only main contractor can benefit from Zero Rating. - supplies of architectural, surveying, and consultation/supervisory services - these services are always standard rated. As the VAT rules in this area are complex, we’d always recommend obtaining specific advice based on your exact circumstances if the VAT treatment of your supplies is unclear. Please contact Allan Easton ([e-mail]) if you would like any further advice.

[@johnd5079]

Hi Henderson, Thanks for reply, very informative but, as you very complex, what annoyed me is our quote for the work stated the standard rate of VAT, it's only when they come to pay they paid at 5% Vat. It a similar situation as CIS, companies treating us under CIS RULES, which we insisted we weren't, in the we got a CIS exception letter from HMRC. Once again thanks.

[@ashab2730]

I own a pair of semi detached houses which we want to convert into 1 large house. Planning permission has been granted for the conversion from 2 dwellings to 1 dwelling and a single storey rear extenstion so the property flows. Will the extension qualify for the reduced 5% VAT?

[@hendersonloggie3787]

Many thanks for your comment, we are glad you found the video of interest. The reduced 5% VAT rate should apply to the circumstances you describe - and clarity in the planning permission is vital, particularly around the extension. In our experience, many builders are unclear on the position and we regularly provide guidance in the form of a ‘to whom it may concern’ letter which sets out the legal basis for the reduced rate. You can use this letter for all contractors involved in the build and this ensures you benefit from the reduced cost. We’d be happy to look at your planning permission and prepare this letter for builders & contractors if the 5% VAT rate applies. If you’d like to discuss this, please contact my colleague Allan Easton ([e-mail]) and he can provide a fee proposal.

[@mrqwerty65]

Hi So can a developer / builder can only pay 5% vat How does that work? He gets a bill with 20% on it and reclaims 15%? Thanks

[@hendersonloggie3787]

Hi, thanks for your comment - for invoicing purposes the supplier of the 5% qualifying construction service will issue a sales invoice showing the net value plus 5% VAT (exactly the same process as a standard 20% rated sale albeit at 5%). This 5% output VAT figure is then the amount of VAT that the purchaser is entitled to treat as input tax subject to the normal VAT recovery rules (i.e. there is never a requirement for the purchaser to manually amend the VAT rate shown on an invoice).